2008 Budget balances fiscal discipline, growth stimulus and welfare, and has clearly been prepared with an eye on the forthcoming elections. Economic growth and revenue buoyancy have given finance minister P. Chidambaram leeway to satisfy a wide spectrum of constituencies.
Both fiscal and revenue deficits have reduced significantly in the budget estimates for 2008-09, compared with previous years. This provides some cushion for the implementation of the Sixth Pay Commission’s recommendations on salaries and benefits for Central government employees.
Arun Panicker, Senior director, CRISIL Research
Estimating and reporting off-budget borrowings, with the intention of dealing with them in a financially responsible manner, is a good move.
The waiver of agricultural loans, clearly a populist decision, has far-reaching long-term implications for borrower behaviour: the moral hazard it creates for existing and future borrowers is worrying.
The effective reduction in personal income tax is a move that will endear the finance minister to the Indian salaried class. The increase in the exemption limits and the changes in slabs will significantly reduce the income-tax burden on the middle class.
Stock markets have reacted negatively to the increase in the short-term capital gains tax. While this has an impact on market sentiment, it also creates an incentive for investors to take a longer-term view on their investments.
Developing a strong and vibrant corporate debt market is essential if India Inc. is to successfully execute its large capital expenditure plans. Moves to improve the tradability of corporate bonds, remove tax deducted at source (TDS) on listed debt securities, and encourage credit derivatives, are steps in the right direction.
Reduction in excise duties should also assist in combating the slowdown that is apparent in many sectors, including two-wheelers and small cars.
All in all, rapid growth has allowed the finance minister to ensure that there is something in this Budget for everyone.